If you had to pick one firm that summed up the prevailing issues that buffeted the financial industry in 2012 it would have to be UBS. The Swiss bank started the year reeling from a rogue trading loss that prompted the departure of chief executive Oswald Grübel and ended it having to pay $1.5bn to settle Libor charges.

Along the way, it announced plans to cut 10,000 jobs and shut down most of its fixed-income business – demonstrating that UBS, like a growing number of its rivals, has not only woken up to its altered circumstances but has actually accepted that it needs to do something about them.

So, where to now?

It just so happens that 2012 was also the Swiss bank’s 150th anniversary. Among the posters displayed in the lobby of its London offices to commemorate the occasion was one that read: “A major milestone in UBS’s history was in 1995 when SBC acquired SG Warburg, the central pillar upon which today’s investment bank is built.”

Warburg was arguably the world’s leading investment bank at the point when the main financial trends of the past three decades – deregulation, globalisation and the drive towards the universal bank model – started to gather momentum. Initially the British firm rode these waves but, ultimately, it was overcome by them.

Now that the tide of history appears to be turning, it seems fair to ask what today’s bankers can learn from the past. Sure enough, the Warburg name was frequently evoked in analysis of UBS’s retreat from fixed income. There is no doubt some sentimentality about brands such as Warburg that were untarnished by the credit crunch through the simple expediency of having ceased to exist – the Warburg name was retired by UBS in 2003.

“The model is hard to replicate these days,” said one former Warburg banker. “It is very difficult to make money in equities if you don’t have scale, fixed income consumes huge amounts of capital and the margins around advisory have been shot to hell.”

But what of the values espoused by Sir Siegmund Warburg, the eponymous founder of the bank? He summed up the most important qualities for a bank in a memo written in 1953: moral standing, reputation for efficiency and high-quality brain work, connections, capital funds, personnel and organisation.
These principles might sound old-fashioned. But that probably says more about prevailing financial fashions than it does about the principles themselves. Certainly they sound a lot less old-fashioned than they did, say, five years ago. Let’s take them in reverse order:

• Personnel and organisation

Sir Siegmund Warburg and Henry Grunfeld set out to create a firm of “merchant adventurers who have to act with a high degree of punch and panache”. To achieve that they took great pains over recruitment, even employing a graphologist to analyse the handwriting of candidates. One former Warburger said Sir Siegmund used to claim his approach to hiring staff was similar to buying ties – picking good ones (both neckwear and staff) when he came across them rather than to fulfil a particular need.

Such an approach would be impractical for today’s behemoth banks. But how many of them can, hand on heart and despite claims that their people are their most important assets, say that they invest enough in their human resources departments?

Once Warburg had the raw material in place, it was bound together with a high level of communication and internal transparency. For example, every single client meeting was summarised and circulated to all corporate finance directors. “One of the blights of modern banks is that people think it is in their best interests to keep things to themselves,” said one banker who started his career at Warburg.

• Capital funds

Warburg is often misremembered as a purely advisory firm. Its name is frequently taken in vain by those arguing that balance sheet prowess needs to be separated from advice.

“Yes, it was a great M&A house,” said James Leigh-Pemberton, the UK chief executive of Credit Suisse, who started his career at Warburg. “But it was also a great securities underwriting house. And it made markets in the Eurobond securities that it led. It was never a purely advisory business.”

The crucial point is that all Warburg’s business was conducted on an agency basis. One former Warburger said banks started down a dangerous path when the principal trading book was treated like another client. It swiftly became the most important one.

• Connections

“In our kind of business,” Sir Siegmund once wrote “the continuity of valuable connections overrides in importance the conclusion of any specific transaction.” This definition of relationship banking has yet to be bettered. However, the value of those connections is harder to measure than that of the transactions. And that is where judgement comes in.

It is worth noting that at least one former Warburger believed that the bank’s pursuit of connections had caused it problems: a long tail of small clients that was not cost-effective to cover. When the US banks swooped in the 1980s they focussed their attention on the biggest, and most profitable, relationships.
Connections, along with personnel, are among a bank’s premium assets. But, like all assets, they must be monitored and managed.

• Brain work

The Holy Grail for many modern banks is the cross-selling of products. This would have been anathema to Warburg. Piers von Simson, a former board member at Warburg and the founder of Auden Capital, said: “[Sir Siegmund] had an utter contempt for the idea of product. He would pronounce ‘prodooce’ with a mock American accent.” Another ex-Warburger said: “[Sir Siegmund] would say that it is all very well for cows to produce but not humans.”

It is the dichotomy between brain-power and product that is as likely to define the future of finance as much as the subtly different one between advice and balance sheet. Those banks that tout products should not be surprised if clients shop around. And that leaves a gap in the market for those banks that really focus on relationships.

• Moral standing

This is the hardest of banking qualities to define, the easiest to lose and, arguably, the most important. What Sir Siegmund called moral standing would probably be defined today as an absence of conflicts of interest. But really it is more than that.

The traders who have been found to have manipulated Libor were not particularly conflicted, they were just plain wrong. The solution sends us back to where we started: personnel and organisation.

Leigh-Pemberton said: “I am far from despairing that the same principles can apply in today’s large financial organisations. But you must do what SG Warburg did: get the culture right, impose the discipline and ensure that the clients’ interests always come first.”

A simple ethos; a difficult proposition – but a crucial one if banks are to regain their “moral standing”.